Chinese e-commerce companies suffer as economy sours

For the April-June quarter, Alibaba Group Holding Ltd. posted its first revenue decline while JD.com Inc. saw its slowest growth, after lockdowns and other rigid Covid-19 control measures in China caused disruptions to supply chains. Executives and analysts expected better performance from Chinese e-commerce companies in the current quarter, but uncertainties linger as Beijing sticks to its stringent zero-Covid policy.

China is the world’s largest e-commerce market, whose online consumption totaled $6.1 trillion in 2021, government data show. The pandemic has spurred the industry’s growth, but the momentum has lost steam. Research firm Insider Intelligence forecasts that e-commerce sales in China will grow 9.1% in 2022, the slimmest gain since 2008 and slower than the 9.4% growth rate estimated for the U.S.

Alibaba posted a revenue decline—0.1%—in the April-June quarter for the first time since its 2014 listing, due primarily to a 1% decline in sales of its core China commerce business.

In an August call with analysts, Alibaba’s Chief Executive Daniel Zhang cited China’s Covid restrictions for a mid-single-digit decline in total sales value of items sold on its flagship e-commerce platforms, Taobao and Tmall.

“Although we are seeing signs of steady recovery in consumption, I think it will take more time for that to fully play out and for consumer confidence and sentiment to fully recover," Mr. Zhang said.

Alibaba’s rival JD.com recorded its slowest revenue increase—5.4%—in the second quarter since it went public in 2014.

An exception was upstart Pinduoduo Inc., which is popular among lower-income consumers for its offer of discounted goods. Pinduoduo’s revenue rose 36% with consumers increasingly looking for bargains with a souring economy, though at $4.7 billion, that is still about 15% of Alibaba’s revenue. Pinduoduo said its distribution of coupons and steep discounts worked to attract customers.

Chinese consumers are grappling with slowing wage increases, rising unemployment and inflation, as the economy expanded in the April-June period at its slowest pace in two years. The recent real-estate downturn is further damping their confidence in the economy.

While China’s retail sales rebounded from a plunge in the spring, its pace of growth is still below prepandemic levels, at 2.7% in July and 3.1% in June, compared with the same period last year. For nearly two decades, retail sales on average had increased by around 12% each month.

Many economists expect consumer spending to remain depressed, as China’s stimulus is largely focused around infrastructure spending and Beijing remains reluctant to budge from its zero-Covid policy.

E-commerce, however, held up better than offline retail. Data from the National Bureau of Statistics show that despite a slim drop in April, sales of physical goods online expanded 11% in the second quarter.

Ma Enbiao, a 36-year-old Shanghai resident, said his family is saving more and stocking up on food for future uncertainties. The financial hub went under a two-month lockdown in the spring, which left many residents struggling to obtain food and supplies.

Mr. Ma, who is into smart home devices and cameras, said he hasn’t splurged on any consumer electronics this year and is eating out less. “I’m downgrading my lifestyle," he said.

As consumers stockpile to prepare for future lockdowns, the growth in online purchases of food and household items has consistently outperformed apparel this year, national data show, though the growth is slower than last year’s pace. JD.com’s largest growth category, supermarket, saw order volume up by more than 25% in the second quarter, compared with the same period last year.

To stimulate consumption, the Shanghai government last week handed out 200 million yuan in digital coupons, equivalent to around $29 million. Mr. Ma received three coupons valued at 100 yuan, or around $15. He said he spent the coupons on purchasing daily necessities and food.

Besides buying of food and household items, Chinese consumers are also spending more on self-care, pet care, outdoor activities and home improvement as sporadic lockdowns continue.

On Alibaba’s platforms, sales in fashion items and accessories took a hit between April and June, the company said. Instead, demand for products in healthcare, pet care and outdoor activities rose.

WPIC, a consulting firm operating stores for global brands across Chinese e-commerce marketplaces, said for the first six months of 2022, camping equipment sales through live streaming on Alibaba’s Tmall shot up 70% year-over-year. On Douyin, the Chinese version of TikTok, revenues from camping goods doubled, WPIC said.

JD.com, too, recorded a double-digit growth in consumption of fitness and wellness in the second quarter. However, demand for electronics, including mobile phones, and big-ticket home appliances, was flat. Government data show sales of home appliances, including TV sets, refrigerators and air conditioners fell 11% in the first half of this year from a year earlier. Analysts say demand for nonstaples will likely remain suppressed throughout the rest of 2022.

Fitch Ratings estimates that China’s e-commerce sales will make up 29% of total retail sales in 2022, compared with 15% in the U.S. China’s growth pace could slow when the country relaxes its Covid control policies and consumers visit bricks-and-mortar stores again, said Karl Shen, who heads China corporate research at Fitch Ratings.

Despite uncertainties in the immediate term, JD.com Chief Executive Xu Lei said that in the long run, China’s consumer market is still strong. “When coming out of the cyclical adjustments, we expect to see strong recovery momentum," Mr. Xu said in an August call with analysts.